Methods of How to Set Bitcoin Stop Loss Orders in Bitcoin Trading
Traders using a Bitcoin trading system must have mathematical calculations that reveal where their stop loss order must be placed.
A trader can also set a stop loss order according to the technical indicators used to set these stop loss orders. Certain technical indicators use mathematical calculations to calculate where the stop loss orders should be set so as to provide an optimal exit point when trading Bitcoin. These chart indicators can be used as the basis for setting these stop loss orders.
Other online Bitcoin traders also place these stop loss orders according to a predetermined risk: reward ratio. This method of setting these orders is dependent upon certain mathematical calculations based on BTCUSD chart price movements. For example a ratio of 30,000 points stop loss can be used by a trader if the trade has the potential to make 90,000 points in profit: this is a risk reward ratio of 3:1. Also, a ratio of 30,000 points or $30 stop loss can be used by a trader if the trade has the potential to make 90,000 points or $90 in profit: this is a risk reward ratio of 3:1
Other traders just use a predetermined percent of their total trading account balance.
To set a stop loss it is best to use one of the following methods:
1. Percentage of BTCUSD Trading account balance
This technique is based on the percent of the account balance that the trader is willing to risk on any one single BTCUSD trade. If a trader is willing to risk 2% of their trading account balance - then the trader determines how far he will set the stop loss order level based on the trade size that he has bought or sold.
Example:
If a trader has a $50,000 account and is willing to risk 2%
If the trader buys 10 contracts
1 pip = $0.01
Then setting at 2 %
2% is $ 1,000
1000 /0.01 = 100,000 points
Stop loss = 100,000 points equal to $100
If the trader buys 20 contracts
1 pip = $0.02
Then setting at 2 %
2% is $ 1,000
1000 /0.02 = 50,000 points
Stop loss = 50,000 points equal to $50
If the trader buys 40 contracts
1 pip = $0.04
Then setting the stop at 2%
2% is $ 1,000
1000 /0.04 = 25,000 points
Stop loss = 25,000 points equal to $25
2. Setting Stop Loss using Support and Resistance Areas
Another way of setting stop loss orders is to use supports and resistance levels, on the BTCUSD trading charts.
Given that stop loss orders tend to congregate at key points, when one of these support or resistance levels is touched by the price, other orders are set off, like dominos. Stop loss orders tend to accumulate just above or below the resistance or support levels, respectively.
A resistance or a support area should act like a barrier for BTCUSD price movement, this is why they are used to set stop losses, if this barrier is broken then the BTCUSD price movement can go toward the opposite direction of the original Bitcoin price trend, but if this barriers (support and resistance levels) are not broken, then the BTCUSD price will continue moving in intended direction.
Stop Loss Setting using a Resistance Level
Setting Stop Loss Orders above the Resistance Level
Stop Loss Setting using a Support Level
Setting Stop Loss Orders below the Support Level
3. Setting Stop Losses Using Trend Lines
A trend line can be used to set stop losses where the stop loss order is set just below the trend line in an upwards trend and above the trend line in a downward trend. As long as the trend line holds then a trader will be able to continue making profits while at the same time setting this stop loss order that will lock his profit once the trend line is broken.
Setting the stop loss order below the BTCUSD price trendline
Example of where to set this stoploss order using trend lines in an upward trending Bitcoin market.
